The Talk: Three Best Practices for Discussing Compensation

The topic of money can be an uncomfortable discussion. Despite the fact money plays a crucial role i...

Posted by Berkshire on January 5 2015

The topic of money can be an uncomfortable discussion. Despite the fact money plays a crucial role in everyone’s life, often managers and employees tiptoe around the subject, discussing it only when absolutelydiscussing compensation necessary. It’s imperative for employees and managers to discuss compensation expectations, abilities, and possibilities frequently and comfortably. Here are three best practices for making “the talk” less stressful for both managers and employees:

Always Prepare for the Compensation Discussion:

When discussing compensation, main points should be thought out and well-rehearsed. Here are some general tips to remember when preparing for a discussion on compensation:

  • As managers, understand the type of questions you are authorized to answer. Some questions require an answer from senior management or human resources.
  • Both employees and managers should have an understanding of the salary range for job positions. Provide appropriate context about salary decisions to demonstrate the equity and fairness in the decision.
  • Have a clear understanding of the compensation philosophy for the positions that are in your department. What should be related to this employee’s pay? Are they in a position that is dominated by past experience and a history of solid performance, or do other variables like education, job-related certifications, and employee location (for cost of living) important for your discussion.
  • Discuss compensation, raises, and bonuses frequently throughout the year. Regularly occurring compensation discussions set expectations and limit confusion at the end of the year.
  • Is starting pay negotiated at your organization? Be prepared to discuss and empathize with how that may be perceived as unfair to women and minorities. Discuss what you’re going to do (go talk to your manager, etc.) about this perception.
  • Understand the differences between Wage Gap and Pay Equity. Most people are erroneously talking about Wage Gap when they discuss “inequities” in pay.

Understand Market Value:

Both employees and managers should know and understand the market value of specific skills and job positions. When having a discussion about compensation, know salary data, and be able to provide context for decisions and inquiries about salary. Present factual information on industry and position-based pay. This is also a great opportunity to communicate the individual value of employees. Acknowledgment shows appreciation, and appreciating your top talent can help retain them. Acknowledgment can’t always come in the form of a bonus or raise, however a job well done should always be recognized.

Separate Performance Reviews:

Although performance and compensation are related, these topics should be discussed separately. Discussing goals, performance, and compensation in one meeting is cumbersome, causing employees and managers to lose focus on important topics. According to V. G. Narayanan, Professor of Business Administration at Harvard Business School, "If you talk about money in the shadow of performance, it will sound like white noise and your employees will just fixate on the compensation." Performance reviews should solely focus on the performance and development of employees—see “Performance Reviews: How to Make the Process Smoother.” Following the review, another meeting should be held to finalize decisions on raises or bonuses.

As we enter the new year, remember these best practices and ensure a less stressful and more comfortable conversation about compensation for all.

ENTER YOUR EMAIL Get HR Alerts & News Delivered to Your Inbox


Contact Us